Oil slides as COVID-19 surge, firmer dollar overshadow U.S. crude drawdown

Workers working on an oil drill
Tyler Stableford | Getty Images

Oil prices fell about 1% on Wednesday after four straight days of declines, as investors remain worried about the outlook for fuel demand as COVID-19 cases surge worldwide and on rising strength in the U.S. dollar.

Brent crude settled 80 cents, or 1.16%, lower at $68.23 per barrel. U.S. WTI crude oil lost $1.13, or 1.7%, to settle at $65.46 per barrel.

The U.S. dollar index was up 0.1%, hitting its highest level since April. Crude prices often move inversely to the dollar because the commodity is priced in dollars; when the U.S. currency rallies, it makes oil more expensive for foreign buyers.

Oil markets have experienced several days of weakness due to the rise in infections caused by the Delta variant of the coronavirus both in the United States and worldwide. Several countries have re-introduced travel restrictions and air traffic has softened in recent weeks.

The market was helped by a bigger-than-expected drawdown in U.S. crude inventories, which fell 3.2 million barrels last week to 435.5 million barrels, their lowest since January 2020. Gasoline stocks, however, rose modestly, which kept the market from moving up given ongoing worries about coronavirus.

"The market is being dragged down on a disappointing gasoline inventory build as we make our way into the Labor Day weekend," said Andy Lipow, president of Lipow Oil Associates in Houston, Texas, referring to the Sept. 6 U.S. holiday.

The four-week average of overall U.S. product supplied to the market - a measure of demand - was 20.8 million barrels per day, in line with pre-coronavirus levels from 2019. Gasoline product supplied was 9.5 million bpd, just 1% below 2019 levels. U.S. fuel demand has steadily increased throughout the year as consumers have resumed activities with vaccination rates going up.